How Carbon Markets are Evolving

How Carbon Markets are Evolving

COP 26 and Carbon Markets

Pedro Carvalho, an Environmental Markets Policy Analyst, chatted with us during our June 2021 webinar series on the current situation of the carbon markets and how the carbon market needs will evolve concerning greenhouse gas emission reduction based on the upcoming COP 26 happening October 2021. 

According to Pedro, organizations in the carbon world are very anxious about the updates to be discussed during COP 26. It will set the trend for compliance and the voluntary carbon markets. Many voluntary standards are waiting for decisions to be made at COP 26 for the rulebook for article 6

From the carbon market perspective, it is fascinating to note how the technologies are shifting from emission reduction technologies toward carbon removal technologies. This shift responds to the 2018 IPCC report saying that it is no longer sufficient to reduce emissions but reach net zero. This stance has pushed private entities towards carbon renewal technologies.

What’s the difference between carbon reduction and removal

Emission reduction is something that is displacing fossil fuel generation in a specific market. Carbon removal projects are physically removing carbon from the atmosphere. For example, a wind farm displaces emissions that would be emitted through thermal power plants.

Carbon Markets Moving Forward

“Carbon offsets or carbon markets overall are not the silver bullets for climate change, but they are market-based instruments that allow the regulated entities more flexibility in achieving their targets. A carbon project is just paying someone to remove or reduce emissions for you”.

Pedro Carvalho

Today, companies are using carbon offsets as a greenwashing tactic in making people think they have completely offset their entire carbon footprint. There is no regulating body in the voluntary market compared to the compliance market, and everyone is using emissions offsets without guidance.

However, there has been a shift in recent years. There are a lot of initiatives trying to build up and equip the voluntary market to be more robust and build more infrastructure. Although there are no regulators, there will be more guidance on how to use emission offsets.

Markets are also shifting to carbon removal because of the rising price of carbon offsets. The effects of the Paris Agreement will be paramount not on technologies but on market conditions. If they demand corresponding adjustments to the voluntary market, this can hinder or overburden the project developers.

Developing Carbon Market Technology

Developing carbon market technology is a balancing act between finding the right tool while at the same time ensuring a credible and robust system, while on the other hand maintaining flexibility for parties to engage. The most critical element in carbon projects are costs (registration, implementation), so whenever we discuss excellent ideas, the price to develop the idea is still very high. If we establish more rules, this will overburden ideas.

Under the Paris agreement, market-based instruments are being envisioned. Article 6.2 transferred mitigation outcomes: Country A investing in Country B’s carbon outcomes, emissions reduction and removal, and counting it towards the emissions of Country A. Market-based instruments can be leveraged to achieve benefit for all parties and further advance the development of carbon technologies.

Final Remarks

In recent years, there has been a departure from emission reduction projects to emission removal projects. This shift is evolving very rapidly and requires a lot of attention to track. Amidst the upcoming COP 26, the industry expects more regulation on carbon markets and related technologies. However, until then, carbon technologies are still highly costly, primarily due to registration and implementation. You can hear more about the evolving nature of the Carbon Markets by watching our June Webinar with Pedro Carvalho

Climate Action: Adaptation & Mitigation

Our readers should look forward to more articles on Carbon Markets after COP 26.

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